If you’re looking to get a step on the property ladder and you’re considering building your own new home, there are some important things to consider when looking for land.
Finding available land
An excellent place to start when looking for land is with a real estate company. However, there are other avenues such as:
- taking a drive through a neighbourhood you like and looking out for ‘For Sale’ signs
- checking local newspapers and property publications
- visiting websites like Property Press and Trade Me.
You could also advertise what you are looking for in local newspapers or on Facebook.
First boxes to tick
How do you know whether a piece of land is suitable for your dream home? Your lifestyle will provide the clues. For example, if you have or are planning to have children, are schools and playgrounds nearby? Also, what is the ‘vibe’ of the neighbourhood? Does it feel safe? Can you imagine yourself living there? Before you commit to buying in an area, it could be a good idea to rent there first.
Physical things to look out for
It’s essential that you fully understand a section’s physical characteristics and how they may affect building costs.
- Wind: If the section is exposed to strong winds, your home will probably need extra bracing to cope with horizontal forces.
- Earthquakes: Like wind, your home will need reinforcing to handle horizontal forces if you are planning to buy in an area known for earthquakes. This could also have a significant impact on insurance premiums and bank borrowing, depending on the level of risk.
- Erosion and flooding: Is the land at risk of natural hazards such as erosion or flooding? If it is, insurance could be a problem. First of all, check the property’s title for any section 72 notices. Also, a LIM report is essential. Be aware that although the Earthquake Commission (EQC) covers earthquakes, floods, and other natural disasters, it won’t protect you against subsidence (land sinkage), so if this is an issue, you may need additional private insurance.
- Land gradient: A sloping section may feature beautiful views. However, it may also require significant earthworks to build on — retaining walls, piles, and engineering foundations will add to your building cost.
- Corrosion: Is the section close to the sea? If so, your home will require corrosion-resistant features in its roofing and joinery. You may also probably spend a lot of time (and money) washing and painting your home.
- Orientation: A final consideration is how much sun you’ll get. On a north-facing section, for example, you will enjoy passive heating during winter time. Although this may not directly affect the building costs, it may impact the resale value of your home, and possibly your heating bill each year.
Getting a valuation
If you’re borrowing money from a bank to buy a section, getting a valuation may be a requirement. However, even if the vendor has commissioned a valuation, it’s still a good idea to get one of your own for better bargaining power.
Be aware that a valuer won't be looking at a completed house, they will be working off plans, so the valuation may not be entirely accurate. There’s a lot to factor in — plumbing and electrical wiring etc. so to avoid the risk of cost overruns, hire a qualified quantity surveyor at the start to create a thorough schedule of works.
Owning a piece of land doesn’t necessarily mean you can do with it as you wish. A building covenant on a section’s title may have restrictions, including the;
- type of house you can build
- materials you can use
- part of the section you can build on.
To find out about any building covenants, as well other essential information, apply for a LIM report from your local council. Also, get a good lawyer to approve the LIM’s contents before you sign on the dotted line.
What can you afford to build?
If you’ve found a section you like, before you make a purchase, now’s the time to better understand of the type of property you can afford to build on it. If you can’t afford to build the house you want on the land you’ve found, you may want to keep on looking.
To know how much the build will cost you’ll need a strict budget, which should be an accurate and specific target that you stick to as much as possible.
Avoid changes to designs and materials if you can – even seeminly minor changes could cost you money. Your tradespeople may well deviate from their quote if your brief changes.
A reasonable estimate for building work is around $2000+ per square metre for something basic, $3500+ per metre for more upmarket versions, and as much as $6000+ for luxury. Note that these are just estimates, and the amount varies widely from project to project and builder to builder. You should also allow at least 10% for overruns, unforeseen costs, or changes to the plan.
Despite costing some money upfront, a quantity surveyor can give you a very accurate assessment of the cost of building prior to you starting which is better than getting halfway through the build and running out of money.
Getting your finances sorted
Being able to scrape together a deposit is great. However, the bank may want to take a look at the rest of your finances. It is important that you demonstrate to your bank that the rest of your finances are in order. It’s a good idea to repay any debt and clear any bills that are outstanding which may affect your credit rating.
Booking in for a BNZ financial health check is a great way for one of our staff members to get to know you and understand the full scope of your aspirations and financial goals. By having these conversations we than have the ability to give recommendations based on the relevant information.
During the application process, your bank may ask you to provide details about how much you spend on your living expenses such as power, water, and groceries. To create a buffer, your bank may use the higher side of what it believes are typical costs for your situation. When calculating what you can afford in mortgage payments, your bank may also use a slightly higher rate than the current interest rate. Doing so provides a level of confidence that if interest rates rise or your financial situation changes, you will still be able to afford your mortgage.
Simon Crang, a BNZ mobile mortgage manager recently spoke about the steps involved when applying for a home loan. You can watch his video here.
Final points to remember
- Think about the future: If the section is surrounded by vacant land, find out what your surroundings will be like if other houses pop up. Check the zoning and covenant rules, and find out what building plans have been submitted to the council.
- Hire professionals: There can be hidden costs when buying land. So, consult with an architect or designer to uncover any issues like flooding or erosion. Also, hire a good lawyer to check over things like the LIM report and purchase agreement.
- Location, location, location: Regardless of the house you build, location is key, so think about the land’s resale value and whether it will increase in value over time.